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Fruit of the Loom & Corporate Taxes

Fruit of the Loom, the company that has been making underwear for well over 150 years, wants Americans to know that it is paying its fair share of corporate taxes.

This information comes according to a strange page that has shown up on the website of the corporation. The headline reads “US Tax Responsibilities Commitment,” and the page makes certain to clarify a number of different points in very large type. Among these points, one reads that since 2002, “Fruit of the Loom has… paid more than $400 million in US corporate income taxes.”

So there you have it.

For the most part, most companies and brands will never go out of their way to say how much they are paying to the Internal Revenue Service, so why would Fruit of the Loom make this statement? Well, we can guess that since Fruit of the Loom is owned by Berkshire Hathaway – with CEO Warren Buffett – they are attempting to minimize the tax inversion damage that Mr. Buffett experienced a few weeks ago with his participation in the Burger King purchase of Tim Hortons, and subsequently moving BK’s headquarters to Toronto.

Here’s a quick recap to better understand: Warren Buffett provided $3 billion worth of preferred equity to 3G capital in the $11.4 billion purchase. 3G capital owns a majority stake in Burger King. Berkshire offered up this money so that BK could purchase Canadian doughnut chain Tim Hortons. This purchase will make BK/Tim Hortons the third largest fast food chain, and they intend to move the company headquarters to Toronto. When there, the business will be subjected to a 26.5% tax rate, which is much better than the 35% rate that you would have to pay in America as a business.

Ultimately, many have accused Warren Buffett of helping Burger King leave the country so that it could lower its tax bill.

Burger King has denied this. “This is not a tax driven deal,” said Alex Behring, chairman of Burger King. Warren Buffett has denied it. “I just don’t know how the Canadians would feel about Tim Hortons moving to Florida (The location of Burger King Headquarters).” Many analysts have chuckled quietly, and the public was quite unhappy as they wrote many threats on a Burger King’s Facebook page. “Move to Canada to avoid paying taxes and I will never darken the door of a Burger King again,” said one man from Arkansas. Sherrod Brown, United States Senator, made the proclamation that “consumers should turn to Wendy’s old-fashioned hamburgers or White Castle sliders” as a move toward patriotism.

Leaving tax issues aside, “the court of public opinion has incredible power” said Toby Southgate, Brand Union CEO, to Adweek last week. “I wonder if Burger King considered it hard enough for moving ahead.” Many people are beginning to wonder the exact same thing.

One thing is quite clear: Fruit of the Loom has seriously considered the Burger King backlash quite thoroughly and worked to preempt public relations problems with this move.

This fear goes well beyond Fruit of the Loom’s association with Warren Buffett. Back in 1998, led by William F. Farley, LBO king, Fruit of the Loom actually chose to move offshore, and went to the Cayman Islands, where there was a 0% corporate tax rate. This move did not work very well: the company went bankrupt in 1999 anyway. The current tax page on the Fruit of the Loom website talks about the company history, and Warren Buffett entered into the picture in 2002, and painfully attempts to stress of that these days, “Fruit of the Loom, Inc., is a US company for income tax reporting purposes and has been for more than a decade.”

That’s fair enough. But there are marketing experts, including Peter Madden, CEO and president of AgileCat in Philadelphia, that wonder if this clarification is going to do more harm than good.

“The danger for brands crafting such statements is going overboard,” said Madden. Madden also suspects that most consumers are not thinking anything negative towards Fruit of the Loom. “This kind of statement may damage the brand voice to a degree, inviting a negative perception that might otherwise never would have existed.”

Madden also added, “it seems borderline guilt ridden in its length.”

Martin A. Sullivan, the chief economist at nonprofit accounting think tank Tax Analysts, agrees with Madden. “It seems like an overreaction on Fruit of the Loom’s part,” he said. “But it goes to show you how, in the general public’s mind, there can be guilt by association.”

Disclosure: This website is not owned or endorsed by Mr. Warren Buffett or Berkshire Hathaway. We are an independent organization dedicated to finance news & events about the world's greatest investor.